Foreclosure suit hits Glen Town Center retail space

After nearly three years of trying to coax more lenient loan terms from its lender, the developer of the Glenview mixed-use complex now faces a $55.6 million foreclosure suit on the project's 267,000 square feet of retail space. The developer, a venture of San Diego-based developer OliverMcMillan LLC, has not made a loan payment since July 1, 2009, according to the complaint, filed last week in Cook County Circuit Court.

Part of the Glenview Naval Air Station redevelopment, the project opened to great expectations in 2003, offering shoppers a pedestrian-friendly, Main Street experience and retailers including a Von Maur department store and a 10-screen Crown movie theater. The village of Glenview invested heavily in the shopping center's success, cutting a $12 million revenue-sharing agreement with OliverMcMillan when the developer bought the land from the village.

Yet the retail property has not generated enough cash flow to cover its debt service since 2006, according to a loan report from Bloomberg L.P. It was appraised at just $36.4 million in March, well below the $55.6 million in principal, interest and fees the foreclosure suit aims to collect.

In a statement, OliverMcMillan says it hopes to work out a “mutually agreeable” solution with Houston-based Situs Cos., a so-called special servicer overseeing the loan. The parties had been in discussions about restructuring the mortgage since at least 2009 and last summer even talked about selling the property.

“While we are disappointed that the Special Servicer has opted to begin foreclosure proceedings, we are committed to continuing to work closely with the Special Servicer to restructure the debt on the retail portion of The Glen Town Center,” the statement says.

A Situs spokeswoman did not return calls.

The lawsuit names the village as a defendant and seeks to establish the village's interests in the property as junior to the mortgage, a move that could wipe out the revenue-sharing agreement between OliverMcMillan and the village.

The developer paid the village more than $38 million for 45 acres of land for the redevelopment, says Donald Owen, Glenview's deputy village manager.

As part the sale, both sides agreed that if OliverMcMillan's annual return on the project exceeded 13 percent, $200,000 would be shared with the village, Mr. Owen says. Subsequently, if the return exceeded 13.5 percent, the village would take in another $200,000, up to a total of $12 million, according to Mr. Owen. But Glenview has not received any payments under the agreement, and it seems likely the village will never see those funds.

“It is our expectation that we will not have any revenue sharing,” Mr. Owen says, declining to discuss the foreclosure suit.

While the Glen Town Center is 92 percent leased, according to real estate data provider CoStar Group Inc., it has been unable to generate enough funds to service its debt. In 2010, the last year for which data is available, annual debt service on the property was more than $2.9 million, but the mall generated just $1.4 million in both net operating income and net cash flow, according to the Bloomberg loan report.

The lawsuit does not include the Von Maur store, the movie theater or the project's residential component.

The Glen Town Center is a compelling redevelopment, but the retail space is a bit out of the way, says Steven Baer, a principal at Metro Commercial Real Estate Inc. in Highland Park.

“There are great demographics there and there's a great built-in customer base,” Mr. Baer says, referring to the project's residential component. “However, it's kind of confined to the people who live there. You really want to have to go there. It's not on a major thoroughfare.”

Glenview's Mr. Owen believes the shopping center has a strong future, whether OliverMcMillan continues to operate it or another group takes over.

“We are not concerned about the viability of the project,” he says. “We understand with the recession great projects have had issues.”

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